Donors seeking new relevance as African growth gains pace

Tuesday, May 27, 2014

AID has quite often been described as a life-support machine for Malawi, one of the world’s poorest nations. A country that has so far eluded the simplistic “Africa rising” narrative, Malawi remains one of the continent’s most aid-dependent nations.

Donors have, for years, tried to set the country on a path to better governance and responsible budgeting by giving it vast sums of official development assistance and then turning off the taps when the government misbehaves. Last year, for example, aid worth $150m was suspended to put pressure on the president to tackle graft after the “cashgate” corruption scandal that raised questions about the whereabouts of $50m of state funds.

Supporting a government involved in high-level graft is a hard sell for donors as taxpayers in the developed world face austerity measures.

In Mozambique, another aid-dependent country, donors are threatening to suspend some of the $400m in aid the country is expecting this year, over issues of corruption and poor governance. But, unlike Malawi, Mozambique is starting to see the fruits of years of high economic growth rates and its aid dependence, although still high, is beginning to decline.

In 2010, aid made up 51.4% of the government’s total budget. By last year, it had dropped to nearly 40% and the finance ministry now says domestic resources will make up 66.5% of this year’s budget, with foreign aid’s contribution down to 33.5%. This is not so much about the efficacy of aid but the growth of other revenue streams. Mozambique is an example of a growing trend across Africa. As the continent becomes more politically stable and investor friendly, capital flows are becoming more diverse and traditional models are being adapted to reflect Africa’s changing needs.